Home Finance Financial Services Providers Must Adapt to Changing Consumer Needs to Foster Financial Inclusion

Financial Services Providers Must Adapt to Changing Consumer Needs to Foster Financial Inclusion

by internationalbanker

By Satty Saha, CEO, TransUnion UK & Europe





Speakers at the recent World Consumer Credit Reporting Conference in Barcelona were unanimous in their views that the world’s consumers are under extreme pressure, with inflation rates soaring to double digits in developed countries and emerging markets not far behind. It’s in pressured economic times like these that the most vulnerable consumers struggle to access financing to help them through the challenges ahead.

Understandably, lenders typically become more risk averse in anticipation of increased delinquencies and fraud. However, it’s important that lenders adapt their methods and measurement criteria in order to keep economies running, as macro issues such as high inflation are the accretion of lived experiences of millions of individuals, each with their own unique circumstances and needs.

As an industry, we ALL have a part to play in finding a solution for this increasingly prevalent problem – helping balance risk with access to finance when consumers need it most. It’s an unfortunate truth that lenders’ risk aversion has the unintended consequence of marginalising consumers who may be credit unserved and who want to access the opportunities credit makes possible, while also putting up roadblocks to underserved and already credit active consumers who want to maximise their available resources.

During uncertain times, lenders need a full picture of consumers’ wallets to better estimate the risk they pose and must seek out differentiated and actionable insights into consumer behavior. The insights can be as simple as a single transaction or as complex as having access to data and insights about consumer credit trends and loan payments, aggregated at a market or individual product level.

At the same time, consumers also want access to information and services which help them make more informed financial decisions as well, so they can leverage credit to prepare for uncertainties.

This year we conducted a global study into credit inclusion which showed both commonalities and differences across global markets. One of our findings was that a disproportionate number of consumers can’t access financial products and services because they have little or no credit history – and no way to build a credit history and score through conventional means. Importantly, the study concluded that once consumers can be evaluated by financial institutions, lenders can better determine where there might be new opportunities for growth and how they can expand credit inclusion.

All markets aren’t created equal and don’t always behave in the same way. To remove barriers to credit and credit building, lenders must evolve the ways in which they allow individuals to initiate or further develop their credit profiles. Methods include using non-traditional data to feed into credit reports, such as telco (mobile phone) data, including reloads, payments, mobile data usage, and device data, to enable lenders to expand their reach by accurately scoring even those consumers with little to no formal credit data. Housing rental data and utilities payments are additional underutilized sources to help better understand an individual’s financial standing.

For example, in the Philippines, more than 50 million Filipinos remain unbanked, despite ongoing increases in financial inclusion, with 45% of the unbanked population resorting to borrowing from non-bank sources such as family and friends. Lenders can now access data from alternative scoring partners, in additional to traditional credit bureau data, giving consumers and businesses alike the potential to take out loans and build greater economic momentum.

What’s more, in a world economy full of subscription services, whether weekly meal preparation kits or entertainment streaming services, there is no shortage of alternative data to consider in assessing someone’s financial history. This also helps lenders process applications more easily and quickly and informs their acquisition strategies by providing a more holistic view of new-to-credit customers.

In India, only 57 million of the country’s 146 million farmers have accessed credit through the formal lending ecosystem. One of the key roadblocks for credit penetration in the agricultural sector is the unavailability of a single, holistic source of information for assessing credit risk and production risk. With solutions now available that provide contemporary credit insights along with crop production and production risk parameters, lenders can have a comprehensive view for astute agricultural credit risk management and policy implementation. By using digitally powered and analytics-oriented geospatial data along with parameterized credit details, credit institutions will be able to  further the digitization of agri-loans to aid in quick disbursals, lower appraisal costs, and provide more access to credit for farmers, and in turn, stimulate farming and agriculture across the country.

By simply updating credit reporting and assessment methods to align with our increasingly connected and data-rich societies and economies, millions around the world can gain access to the tools and resources to help build or enhance their financial stability, especially amid challenging economic times.

The country’s aggressive investments in technology and energy have allowed growth that looks to place India as the world’s third largest economy by 2027, passing Japan and Germany. The country’s more than one billion residents are likely to see many changes in the future, with an economic and social landscape that continues to evolve. TransUnion CIBIL’s insights into women borrowers highlighted that only 54 million of India’s 435 million women are active borrowers, showing the huge potential of providing access to credit for women across the country – empowering them while driving financial inclusion in a country where 408 million people are completely unserved by credit.

Growth among women borrowers in India has remained strong despite the COVID-19 pandemic, with women borrowers growing at a rate of 11% during 2021, compared to the number of male borrowers growing at a rate of 6%. The overall share of women borrowers in semi-rural and rural locations, compared to urban areas, has risen to 62% – an increase of 5% over five years.

Women borrowers in India display higher credit consciousness and have better credit scores than their male counterparts. While 53% of women borrowers had a score of prime and above, only 47% of male borrowers have scores of at least prime. Women also have fewer rates of consumer-level delinquencies, with 5.2% across retail credit products compared to 6.9% of male borrowers. The most popular types of loans taken out by women include personal loans and consumer durable loans, but greater access to credit will also help to fuel the growing number of women entrepreneurs in India that provide jobs for millions of people across the country.

Being credit unserved is not a phenomenon unique to developing markets – 45 million American adults are credit invisible according to the US Consumer Financial Protection Bureau, which also found that Black Americans and Hispanics are more likely than Whites to be credit invisible at almost every age.

TransUnion insights suggest that credit consciousness is directly proportional to positive credit behavior. As consumers become more aware of the importance of a good credit score, they tend to repay their credit on time, and make better-informed decisions about other credit products they may be considering.

As an industry, we can only make progress on financial inclusion if we work together to level the playing field for the consumers who need it the most. We can do this by including the data points that these consumers have to offer as a contribution to a credit score, rather than excluding them because they’re not already part of a system already.

Financial institutions and data insights companies the world over need to focus on educating consumers and innovating within our platforms if we are to play a meaningful part in furthering financial inclusion and helping those most affected by the current economic environment to survive and thrive within it.


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